The rare earths escalation dominance drama between Beijing and Washington is the noise.
Readers of these pages have by now had their fill of numerous opinions and conjecture from other sources over what these tactical moves represent.
Taco talk is a distraction. At the end of the day, trade wars about who gets to sell what to whom, at what price, and in which quantities.
For China, the what, the price, and the quantity are driven by one overriding motive: a growth at all-costs mercantilist political economy.
China is currently in the middle of a housing bust that has annihilated private balance sheets.
On Thursday night we learned from S&P Global that China’s real estate market is facing a fifth year of decline, with new home sales projected to fall by 8% in 2025. This is a sharper decline than the 3% drop that previously expected.
New home sales are expected to decline an additional 6% to 7% in 2026.
China’s housing market pickle makes them more reliant on exports to grow their economy.
Thus, the tariff war is a setback to China’s efforts to continue to grow their economy via exports.
On the face of it, the release of China’s customs data gives the impression of a resilient export sector despite the U.S. tariff regime. This table from Bloomberg made the rounds this weekend.
The above is not a flex for a couple of reasons.
First, China’s exports to the USA are down 27% YoY, and up 14.8% YoY to the rest of the world.
Second, goosing RoW exports to make up for the USA export collapse means China is doing one of two things, or both.
Aggressively discounting exports to find them an alternative sale destination.
Using transshipment via third part countries for an eventual U.S. destination.
Ultimately, transshipment hurts Chinese profitability via increased trade frictions as trade now has other stops before a final American destination. Trade diversion to an alternative final (non-U.S.) destination results in more aggressive pricing, also a loss to Chinese producers.
Thus, the big story is not rare earth metals, but the big fall in direct trade with the